The High Cost of Multilevel Marketing Plans

I am simply amazed at how much money certain “business opportunities” can end up costing. I put the term “business opportunities” in quotes because what I’m really talking about are multilevel marketing plans that disguise themselves as “business opportunities.” I am most familiar with one particular company (though I won’t name it here) but I know there are many others like it.

It starts like this: You are invited to a “party,” “meeting” or “open house” where you are shown certain “high quality” products. You are invited to purchase these products through the host of the get-together. But if you want to go beyond just purchasing “great products” (and you are told you should) you can also sign-up for this program and sell them yourself. Not only you will you receive these products at “discounted” prices, but you will also “make money” on top of that. Sounds like a great idea right? You can buy things you would normally buy, at discounted prices, and if you get someone else to buy from you (or someone who wants to sign up through you) you can make a lot more money. Congratulations – you’ve just been conned by a “friend.” In your friend’s defense, they most likely don’t realize that they are conning you because they’ve been conned themselves and are simply perpetuating the cycle. However, that doesn’t make any of their claims that they’ve been fed any more true.

Even though it can sound like a legitimate way to make some extra money, chances are you will lose way more money than you will ever make if you sign up for a multilevel marketing plan. There are so many extra costs involved that aren’t brought up and usually aren’t discovered until you’ve already made an initial investment.

Initial Investment

This is the first cost associated with a multilevel marketing plan. You have to pay a certain amount up front to even be in the program. This cost can vary depending on what you choose. There is usually a base start up fee, the cost of buying sample products if you want to be able to show potential clients how great the products are, the cost setting up an maintaining a website if you want to sell products online (which, of course, you should because you’ll sell more that way), the cost of catalogs that you will want to give to people to see what products you now offer, and the list goes on. The initial investment that you make on a program like this is most likely more than you’ll ever make in the program itself so essentially, you can end up behind before you even start.

Purchases of the company’s expensive products

Part of the premise of making money in this business is that you buy your normal household products from them every month (they claim you are buying them from yourself, but let’s face it — you aren’t). Many of the products they sell are only available in bulk so if you have a smaller family and don’t need as much, you’re already overspending your budget by buying their items. Even if you normally buy things in bulk, the prices of these products are for the most part higher than you would pay at a normal grocery store on sale.

Their claim is that their products are better quality. While this may be the case on a few items, this claim doesn’t fly on brand name items you can buy at Wal-Mart, and they are assuming you can afford (or even want to) pay a lot more for an item of “significant higher quality.” This guarantees that the money you would spend on buying your normal products through them each month will cost you more than if you were to shop on sale at normal stores.

Taxes

If you were to bring up the above fact that their products cost more, you might be told that you would actually receive a discount on the products through the fact that you make a certain percentage off all your sales. That’s a nice thought, but the reality is that even though you will in fact receive a certain percentage of your sales (albeit a small one) that money is actually considered income and you have to pay taxes on it.

If I have to pay extra taxes on my “discount” then it’s not really a discount is it? In addition, your participation in this plan means that you are an “independent business owner.” This means that you have to file separate taxes for this “business” which can cost you more. If you don’t end up hiring someone to do your taxes for you, it will still take you more time and frustration to file a separate set of tax forms for this “business.” The flip side of this is supposed to be that you can write all your “business” expenses off on your taxes so the extra costs don’t really matter. The problem is that if you aren’t making any money with the business, you have no profits with which to write off the expenses.

Conference and motivational material fees

In addition to selling this company’s products, you are encouraged to also buy motivational materials (books, tapes, etc.) and attend regular “conferences” and “rallies.” These are supposedly to help motivate you to sell more and “realize your dream of becoming financially independent.” At over $100 a pop for a conference ticket, it seems rather backwards if you are trying to make money. While these conferences and motivational materials may not be mandatory, you are likely to be told that if you really want to succeed, you will need to “invest” in these.

Time

In order to sell any amount of products or recruit other people, you have to spend a lot of time in meetings, trying to sell, and basically marketing their products. This can pay off if you are successful, but if not, you can sure spend a lot of time trying for nothing.

Friends and Family

I think the worst part of a multilevel marketing plan is the threat of alienating those around you by trying so hard to get them to join you in this plan. Participants in these plans are strongly encouraged to recruit everyone they can. The simple fact is that the more people you sign up, the more money you make from it. However, many people try to sell their friends and family on the idea that they will make a ton of money from this plan when that is the opposite of the truth. This can lead to mistrust as the new “convert” believes they’ve been lied to or taken advantage of when the money doesn’t materialize.

Even if you have a friend who doesn’t join, your constant encouragement to try to sell them products will most likely get them irritated and they will start to avoid you. I’m all for selling products you believe in, but when there’s so much pressure and such an empty promise to make so much money, quite frankly it makes me angry. If you don’t try to sell the product enough, others in the program will accuse you of not trying hard enough, yet if you sell too hard your friends and family will start to think you only want to make money off of them.

My biggest pet peeve about these multilevel marketing plans is that they fool you into thinking that you are a “business owner” and that you have control of how well you do in your “business.” While technically there is a possibility to make money from it and you do get to write certain expenses off for “business,” the truth is that you are really only a salesman. If you truly owned your own business, you would have a say in the products, how much they cost and you would be running the show. With a multilevel marketing plan, you are merely selling someone else’s product under their guidelines.

The bottom line is that if you are a good salesman, you might make some money in this kind of program, but you could also make money selling other things that wouldn’t include paying all these extra costs. If you are looking for legitimate way to earn some extra money, you want to stay away from plans that will cost you a lot more than you’ll ever make — and that is exactly what most multilevel marketing plans do. So be aware of these programs and all their hidden fees and be sure to research the claims that anyone makes regarding these types of plans.

6 Responses to The High Cost of Multilevel Marketing Plans

I have a whole bunch of water filters gathering dust in my garage because of a mlm scam I got conned into. One of the worst financial mistakes I made — especially since it was at a time when money was already tight and I couldn’t afford to waste it like I ended up doing.

MLM-make little money Generally the company fails the person, not the other way around. Those network marketing companies that have a business system that works are legitimate ways to make money. Read any good tax book and they will encourage you to have your own home based business. You have to choose a company whose system works and is well proven. We have many former MLM’ers in mine and they ARE making money and DO save on taxes.

Remember, if you don’t do anything, then everything remains the same. do your homework because there are companies that DO WORK.

I gave away $300 for a kit from a cosmetics company, in the hope of making money with my “own” business. What a crock! Fortunately, I realized it was a scam before I bought thousands of dollars in inventory, unlike some others i know.